Does your debt just disappear when you die? What happens to all of your credit cards, car loans, student loans, and mortgages when you, or a loved one, dies? How do you deal with debt collectors and which debts are you responsible for?
If the debt was only in your name then no other individual person is responsible for it or them. If this is the case someone can mail the collection agencies the death certificate and if they still don’t back off the collectors can be reported to the authorities. Your family is not responsible for paying off debts that are in your name only. However, your estate is responsible. This means that any assets you have will be sold off to repay your debts. Let’s say you have a spouse or child that you want to leave your house or life savings. If you’re in debt, the collector can take it all, leaving your family with nothing.
Anything co-signed is another story. If you and your spouse bought a house together than your spouse will become responsible for the entire mortgage because it is in his/her name.
If your parents co-signed on your student loans then they become responsible for the full amount of the loan. Same with a car loan, personal loan, anything that is co-signed.
Your creditor will go after your estate. Some states have limits on how much they can try to collect but collectors will try to get what they’re owed. If you have nothing—no money, no property or any other assets then in rare cases creditors will try to go after your family.
How can you avoid this?
Life insurance can be used to pay off debts and bills, to protect cosigners, and help with funeral expenses. If you don’t have any assets and you name your spouse or children as the beneficiary of your life insurance then debt collectors can’t touch that money.
It’s a good idea to your spouse or children know how much money you owe so they don’t get surprised when it’s too late.